H - Texas



H.B. No. 734

AN ACT

relating to the conversion of separate property to community property and to equitable and ownership interests in marital estates.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1.  Subchapter A, Chapter 3, Family Code, is amended by adding Section 3.006 to read as follows:

Sec. 3.006.  PROPORTIONAL OWNERSHIP OF PROPERTY BY MARITAL ESTATES. (a) If the community estate of the spouses and the separate estate of a spouse have an ownership interest in property, the respective ownership interests of the marital estates are determined by the rule of inception of title.

(b)  An equitable interest created by Subchapter E:

(1)  does not create an ownership interest in a spouse's separate property; and

(2)  creates a claim against the spouse who owns the property that matures on termination of the marriage.

SECTION 2.  Chapter 3, Family Code, is amended by adding Subchapter E to read as follows:

SUBCHAPTER E. EQUITABLE INTEREST OF COMMUNITY ESTATE

IN ENHANCED VALUE OF SEPARATE PROPERTY

Sec. 3.401.  ENHANCEMENT IN VALUE DUE TO FINANCIAL CONTRIBUTION OF COMMUNITY PROPERTY. (a) The enhancement in value during a marriage of separate property owned by a spouse due to a financial contribution made with community property creates an equitable interest of the community estate in the separate property.

(b)  The equitable interest created under this section is measured by the net amount of the enhancement in value of the separate property during the marriage due to the financial contribution made with community property.

Sec. 3.402.  USE OF COMMUNITY PROPERTY TO DISCHARGE DEBT ON SEPARATE PROPERTY. (a) The use of community property to discharge all or part of a debt on separate property owned by a spouse during a marriage creates an equitable interest of the community estate in the separate property.

(b)  The equitable interest created under Subsection (a) in the enhanced value of separate property due to financial contributions made with community property is computed by multiplying the net enhanced value of the separate property by the sum created by dividing:

(1)  the total amount of the payments made by the community estate to reduce the principal of the debt on the separate property; by

(2)  the sum of:

(A)  the amount computed under Subdivision (1);

(B)  the total amount of the payments made by the separate estate to reduce the principal on the debt; and

(C)  the total amount of any additional amount spent by the separate estate to acquire the interest in the property.

(c)  For purposes of this section, the cost of any improvements made to the separate property paid for by either the separate or community estate is included as part of the principal of the debt.

Sec. 3.403.  APPLICATION OF INCEPTION OF TITLE RULE. (a) This subchapter does not affect the rule of inception of title under which the character of property is determined at the time the right to the property is acquired.

(b)  The equitable interest created under this subchapter does not create an ownership interest in property.

Sec. 3.404.  EQUITABLE INTEREST OF SEPARATE PROPERTY ESTATE. (a) The separate estate of a spouse has an equitable interest in the enhanced value of the separate estate of the other spouse or in the enhanced value of the community estate for:

(1)  a financial contribution made to the other separate estate or to the community estate; and

(2)  the discharge of all or part of a debt of the other separate estate or of the community estate.

(b)  The equitable interest created by this section is measured in the manner provided by Section 3.401(b) or 3.402(b), as appropriate.

Sec. 3.405.  USE AND ENJOYMENT OF PROPERTY. The use and enjoyment of property during a marriage does not create a claim of offsetting benefits to the equitable interest created by this subchapter.

Sec. 3.406.  EQUITABLE LIEN. On termination of a marriage, the court shall impose an equitable lien on community or separate property to secure a claim arising by reason of an equitable interest as provided by this subchapter.

SECTION 3.  Chapter 4, Family Code, is amended by adding Subchapter C to read as follows:

SUBCHAPTER C. AGREEMENT TO CONVERT SEPARATE PROPERTY TO

COMMUNITY PROPERTY

Sec. 4.201.  DEFINITION. In this subchapter, "property" has the meaning assigned by Section 4.001.

Sec. 4.202.  AGREEMENT TO CONVERT TO COMMUNITY PROPERTY. At any time, spouses may agree that all or part of the separate property owned by either or both spouses is converted to community property.

Sec. 4.203.  FORMALITIES OF AGREEMENT. (a) An agreement to convert separate property to community property:

(1)  must be in writing and:

(A)  be signed by the spouses;

(B)  identify the property being converted; and

(C)  specify that the property is being converted to the spouses' community property; and

(2)  is enforceable without consideration.

(b)  The mere transfer of a spouse's separate property to the name of the other spouse or to the name of both spouses is not sufficient to convert the property to community property under this subchapter.

Sec. 4.204.  MANAGEMENT OF CONVERTED PROPERTY. Except as specified in the agreement to convert the property and as provided by Subchapter B, Chapter 3, and other law, property converted to community property under this subchapter is subject to:

(1)  the sole management, control, and disposition of the spouse in whose name the property is held;

(2)  the sole management, control, and disposition of the spouse who transferred the property if the property is not subject to evidence of ownership;

(3)  the joint management, control, and disposition of the spouses if the property is held in the name of both spouses; or

(4)  the joint management, control, and disposition of the spouses if the property is not subject to evidence of ownership and was owned by both spouses before the property was converted to community property.

Sec. 4.205.  ENFORCEMENT. (a) An agreement to convert property to community property under this subchapter is not enforceable if the spouse against whom enforcement is sought proves that the spouse did not:

(1)  execute the agreement voluntarily; or

(2)  receive a fair and reasonable disclosure of the legal effect of converting the property to community property.

(b)  An agreement that contains the following statement, or substantially similar words, prominently displayed in bold-faced type, capital letters, or underlined, is rebuttably presumed to provide a fair and reasonable disclosure of the legal effect of converting property to community property:

"This instrument changes separate property to community property. This may have adverse consequences during marriage and on termination of the marriage by death or divorce. For example:

"Exposure to creditors. If you sign this agreement, all or part of the separate property being converted to community property may become subject to the liabilities of your spouse. If you do not sign this agreement, your separate property is generally not subject to the liabilities of your spouse unless you are personally liable under another rule of law.

"Loss of management rights. If you sign this agreement, all or part of the separate property being converted to community property may become subject to either the joint management, control, and disposition of you and your spouse or the sole management, control, and disposition of your spouse alone. In that event, you will lose your management rights over the property. If you do not sign this agreement, you will generally retain those rights.

"Loss of property ownership. If you sign this agreement and your marriage is subsequently terminated by the death of either spouse or by divorce, all or part of the separate property being converted to community property may become the sole property of your spouse or your spouse's heirs. If you do not sign this agreement, you generally cannot be deprived of ownership of your separate property on termination of your marriage, whether by death or divorce."

Sec. 4.206.  RIGHTS OF CREDITORS; RECORDING. (a) A conversion of separate property to community property does not affect the rights of a preexisting creditor of the spouse whose separate property is being converted.

(b)  A conversion of separate property to community property may be recorded in the deed records of the county in which a spouse resides and of the county in which any real property is located.

(c)  A conversion of real property from separate property to community property is constructive notice to a good faith purchaser for value or a creditor without actual notice only if the agreement to convert the property is acknowledged and recorded in the deed records of the county in which the real property is located.

SECTION 4.  Section 7.002, Family Code, is amended to read as follows:

Sec. 7.002.  DIVISION OF PROPERTY UNDER SPECIAL CIRCUMSTANCES. In addition to the division of the estate of the parties required by Section 7.001, in a decree of divorce or annulment the court shall order a division of the following real and personal property, wherever situated, in a manner that the court deems just and right, having due regard for the rights of each party and any children of the marriage:

(1)  property that was acquired by either spouse while domiciled in another state and that would have been community property if the spouse who acquired the property had been domiciled in this state at the time of the acquisition; [or]

(2)  property that was acquired by either spouse in exchange for real or personal property and that would have been community property if the spouse who acquired the property so exchanged had been domiciled in this state at the time of its acquisition; or

(3)  the equitable interest, as provided by Subchapter E, Chapter 3, of the:

(A)  community estate in the separate estate of a spouse;

(B)  separate property of a spouse in the separate property of the other spouse; and

(C)  separate estate of a spouse in the community estate.

SECTION 5.  (a) Except as provided by this section, this Act takes effect September 1, 1999.

(b)  The change in law made by this Act by the addition of Subchapter C, Chapter 4, Family Code, takes effect January 1, 2000, but only if the constitutional amendment proposed by the 76th Legislature, Regular Session, 1999, relating to the conversion of separate property to community property, is approved by the voters. If the proposed constitutional amendment is not approved by the voters, that subchapter does not take effect.

(c)  The change in law made by this Act by the enactment of Section 3.006, Family Code, and Subchapter E, Chapter 3, Family Code, and by the amendment of Section 7.002, Family Code, applies to a suit for dissolution of a marriage pending on September 1, 1999, or filed on or after that date.

SECTION 6.  The importance of this legislation and the crowded condition of the calendars in both houses create an emergency and an imperative public necessity that the constitutional rule requiring bills to be read on three several days in each house be suspended, and this rule is hereby suspended.

_______________________________ _______________________________

President of the Senate Speaker of the House

I certify that H.B. No. 734 was passed by the House on April 27, 1999, by a non-record vote; and that the House concurred in Senate amendments to H.B. No. 734 on May 26, 1999, by a non-record vote.

_______________________________

Chief Clerk of the House

I certify that H.B. No. 734 was passed by the Senate, with amendments, on May 21, 1999, by a viva-voce vote.

_______________________________

Secretary of the Senate

APPROVED: _____________________

Date

_____________________

Governor

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